Data on the proportion of the housing stock owned by investors and owner-occupiers
are not readily available. However, data on household's tenure type from
the Census should be a good
proxy.[5]
These data suggest that in 2011 around 68 per cent of the occupied housing
stock was owned by owner-occupiers (as discussed above). Government-owned housing
made up a further 5 per cent of the housing
stock.[6]
The remaining 26 per cent of occupied housing was rented, from a wide range
of
sources.[7]
The share of housing rented from real estate agents and other private individuals,
which could be assumed to be owned by individual investors, was somewhat less
at 23 per cent
(Graph 22).[8]
The proportion of the housing stock owned by investors appears similar in metropolitan
and regional areas, but by housing type, investors own a much larger proportion
of the apartment stock (around two-thirds) than the stock of houses (around
one-quarter) (Graph 23).

Graph 22

Graph 23

Data on the number and value of housing loans outstanding suggest a similar pattern.
Around 30 per cent of the number of outstanding housing loans are to investors
(with a slightly larger proportion by
value).[9]
This is a little larger than the apparent share of the housing stock owned
by investors, reflecting investors' greater propensity to have a mortgage
compared with owner-occupiers.

The proportion of the housing stock owned by investors looks to have risen over recent
decades, offsetting the decline in the prevalence of public housing (leaving
the proportion of the housing stock owned by owner-occupiers – the home
ownership rate – relatively stable, as discussed earlier). The investor
share is also likely to have risen a little further over the past few years,
as investors have accounted for an increasing share of property purchases since
2012. Data on the proportion of residential property transactions that involve
investors as purchasers or sellers are not readily available, but loan approvals
data give some guide as to the prevalence of investors as purchasers. Investors'
share of loan approvals has risen from a little over 30 per cent in 2011 to
almost 40 per cent recently, with the increase most pronounced in New South
Wales (Graph 24).

Graph 24

As noted in RBA (2014b), prudent limits on loan sizes are less binding for property
investors that have significant equity to deploy than for some other purchasers.
As discussed above, typically the interest rate used to calculate allowable
loan sizes does not fall as much as actual interest rates, or only up to a
point; this practice has been strengthened recently in light of recent guidance
issued by APRA (2014). This means the marginal borrower has less scope to increase
their loan size as interest rates fall. This practice is in the long-term interest
of borrowers, as it helps ensure they can still service the loan once interest
rates rise again. However, it does mean that borrowers for whom these constraints
are not binding appear to have a relative advantage during periods of low interest
rates, since they can increase their loan size and make larger offers for specific
properties. In the Australian environment, the most constrained borrower is
usually a first home buyer and the less constrained borrowers are investors
or trade-up buyers with considerable equity. As such, this might help to explain
the low share of first home buyers in recent new lending for housing. Reductions
in state government incentives for first home buyers (of established housing)
could also have contributed to this outcome. It also implies that the increase
in investor demand is likely to have contributed to the recent strong growth
in housing prices, particularly in Sydney.

The increase in investor activity and strong growth in housing prices, among other
developments, has raised concerns about risks emerging in the housing and mortgage
markets. In response to these concerns, APRA announced measures in December
2014 to reinforce sound housing lending practices (APRA 2014). This included
a benchmark for lenders' growth in investor housing lending of 10 per cent,
above which supervisory action may be intensified. With total lending to investors
growing at a little above 10 per cent over the past year, these measures are
intended to result in some moderation of investor borrowing and purchasing
activity in the period ahead, although it will take some time before the existing
pipeline of approvals and pre-approvals are worked through.

Tax data show that the share of the population aged 15 years and over with an investment
property grew steadily through the 1990s and early 2000s, before broadly stabilising
in the late 2000s at around 10 per cent (Graph 25). Over the same period,
the share of these investments that were geared – where the investor
claimed interest deductions – increased steadily before levelling off
at a little over 80 per cent. The share of investors that declared a net rental
loss, taking advantage of the tax benefits of negative gearing, was just under
two-thirds in 2012/13, having increased from around half in the late 1990s.

Graph 25

Data from household surveys and the tax office suggest that the propensity to own
an investment property increases with age, as with owner-occupation, but declines
after the age of 65, consistent with households drawing on investments to fund
retirement (Graph 26). Since the early 2000s there have been some notable
changes in the distribution of investment and gearing across age groups. In
particular, the share of property investors that are aged 60 years and over
has increased significantly. According to tax data, this shift in the distribution
of investors towards older individuals reflects both the ageing of the population
as well as an increase in the propensity to own investment property within
this age group (RBA 2014a). Tax data suggest that older individuals have also
become more likely to have a mortgage against their property investment, with
around one-third of investors aged 65 and over claiming interest deductions
from their total incomes in 2012/13. Nonetheless, borrowing remained far more
prevalent among younger investors, with almost all investors below the age
of 45 years being geared.

Graph 26

Tax data also show that the incidence of property investment and the incidence of
geared property investment both increase with income
(Graph 27).[10]
While the incidence of property investment fell between 2003/04 and 2012/13
for most income levels, it increased for those with very low incomes and those
with very high incomes. For investors with very low incomes, individuals aged
60 years or older comprised a larger share in 2012/13 than in 2003/04, as an
increasing number of baby boomers owning investment properties entered
retirement.[11] These investors
may be more capable of servicing any investment property debt than their younger
low-income counterparts. In particular, even though their total income (for
tax purposes) is low, they are likely to have non-taxable sources of income,
such as drawdowns from superannuation funds.

Graph 27

While the incidence of property investment increases with the level of income, the
Household, Income and Labour Dynamics in Australia (HILDA) Survey also suggests
that most investor households are in the top two income quintiles. These households
hold nearly 80 per cent of all investor housing debt (Graph 28), and appear
well placed to service their debt: they typically use less than 25 per cent
of their income to service their total property debt, and around half are ahead
of schedule on all their mortgage repayments
(Table 1).[12]

Graph 28

Table 1: Housing Debt Serviceability

Owner-occupier and investor households, by gross income quintile, 2010

Gross income quintile

Ahead of schedule on total mortgage repayments

Median total housing debt repayments to gross income ratio

Per cent of households in each income quintile

Per cent

Owner-occupiers(a)

Investors(a)

Owner-occupiers(a)

Investors(a)

1 (lowest)

36

26

50

128

2

48

26

30

46

3

48

38

25

35

4

55

44

19

24

5 (highest)

62

49

16

21

(a) Most investors are also owner-occupiers, but some are not: according
to HILDA, just over 3 per cent of households were investors but not owner-occupiers
in 2010, with a median age of 37 years (compared with 50 years for all
investor households)

Sources: HILDA Release 13.0; RBA

Footnotes

Housing tenure of households as recorded in the Census differs somewhat from ownership
of the housing stock because it does not provide information about the ownership
of dwellings that were vacant on Census night, including (owner-occupied)
holiday and second homes as well as vacant properties that are available
for rent.
[5]

This includes a small amount of housing classified in the Census as ‘other
tenure type’.
[6]

Including: (i) housing provided by state or territory housing authorities; (ii) housing
provided by housing cooperatives and community and church groups; (iii) dwellings
rented through a residential park, such as a caravan park; and (iv) housing
provided by an employer.
[7]

However, this includes dwellings rented by members of the owners' family as well
as some holiday rentals. As noted above, the tenure data do not capture houses
owned by investors that were not rented (such as holiday homes). According
to the HILDA Survey, around 9 per cent of investment properties owned by
households did not earn rent in the previous year.
[8]

Lenders can have difficulty classifying loans by type of purchaser, so these figures
will have a margin of error.
[9]

Total gross (before-tax assessable) income includes wages and salaries, net rental
income, net capital gains, income derived from financial assets and certain
other income items. It excludes non-taxable sources of income such as pension
streams and drawdowns from superannuation funds. The average total income
per taxpayer was around $55,000 in 2012/13, excluding these non-taxable sources.
[10]

The increase in lower-income individuals aged 60 years and over was also partly driven
by changes to taxation of superannuation in July 2007. Total income as recorded
on the individual's tax return fell for those aged 60 years and over,
because some superannuation benefits that had previously been taxed became
tax free and are therefore no longer recorded in total income.
[11]

Debt servicing in the HILDA Survey is measured as ‘usual repayments’.
For an amortising loan, it is likely to capture scheduled principal and interest
repayments as well as any regular excess repayments made by the borrowers.
[12]